Dollar Down Over Brexit, U.S. Stimulus Risks

FxPremiere.com – FX Signals | The dollar was down on Wednesday morning in Asia, with investors taking stock of the risks ahead ranging from Brexit trade talks between the U.K. and the European Union (EU) to the U.S. Congress’ debate over the latest COVID-19 stimulus measures.

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The USD/JPY pair inched down 0.01% to 104.14.

Dollar Up Over Positive U.S. Economic Data

The AUD/USD pair inched up 0.07% to 0.7417, with the AUD receiving a boost from December’s Westpac Consumer Sentiment (WCS). The WCS’s jump to 4.1%, against November’s 2.5% jump, was the highest in a decade.

Meanwhile, the NZD/USD pair inched down 0.01% to 0.7039.

The USD/CNY pair inched up 0.04% to 6.5333. China’s November consumer price index (CPI) came in below expectation, with data showing that CPI contracted 0.6% month-on-month and contracted 0.5% year-on-year, while the producer price index (PPI) contracted 1.5% year-on-year.

EUR/USD Weakens After ECB Stimulus Fails

The GBP/USD pair inched up 0.10% to 1.3367. The pound whipsawed before steadying above recent lows earlier, with Brexit talks currently deadlocked;

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In anticipation of the wild ride ahead, volatility gauges for the pound have surged. One-week sterling implied volatility saw a fresh eight-month high on Wednesday alongside an elevated premium of puts to calls.

FOREX – U.S. Dollar Down Amid Improved

“Put a gun to my head and I’d be a buyer of sterling, as I see the risk skewed that Johnson would come back with some sort of agreement,” Pepperstone’s Chris Weston told Reuters, although he added rewards for such a bet might be limited.

“Broad positioning is short sterling, but not at extremes by any means. This limits the prospect we get an exaggerated short-covering rally to say $1.3800 or $1.4000.”

Dollar Drifts Lower; Stimulus and Vaccine

The amount is slightly higher than the $908 billion package proposed by a bipartisan group of lawmakers during the previous week.

HOW IT WORKS – FOREX SIGNALS

The focus is also on the European Central Bank (ECB) and the Fed, both due to hand down their last policy decisions for 2020 on Thursday. For the ECB in particular, investors are looking to see what the central bank will do or say about the euro, which has already gained 8% in 2020.

Dollars bought as stimulus hopes

“It will be a very difficult task for the central bank to weaken the euro,” ING strategists said in a note.

“There is a risk is that the press conference bias pushes the euro higher, particularly if the forward guidance beyond the December easing package is not overly strong,” the note added.

Other investors remained cautious about the dollar’s short-term prospects.

Uncertainty around Brexit, around the progress of a fiscal spending package through U.S. Congress and around the outcome of Thursday’s ECB meeting have traders temporarily cautious.